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Fed’s George Sees No Need to Ease Unless Slowdown Deepens

Steve Matthews

(Bloomberg) -- Federal Reserve Bank of Kansas City President Esther George said she dissented against interest-rate cuts at the past two policy meetings because the U.S. economy is currently doing well, but she would be prepared to support a further reduction should she see evidence of a sharper slowing of growth.

“The moderation of economic growth in 2019 has been in line with my own outlook that calls for a gradual decline to a trend level over the medium term,” George said Sunday at a National Association for Business Economics meeting in Denver. “Should incoming data point to a broadly weaker economy, adjusting policy may be appropriate to achieve the Federal Reserve’s mandates for maximum sustainable employment and stable prices.”

Fed Chairman Jerome Powell said Friday the U.S. economy is in a “good place” but faces risks, giving no clear signal as to whether he favors the Federal Open Market Committee making another rate cut this year. Markets have priced in another reduction in October following weakness in manufacturing, services and employment reports, amid a slowing global economy and the U.S. trade war with China.

George, who’s been among the most hawkish of Fed officials and questioned the need for cuts, suggested she’d be flexible if data look worse than she expects.

“With moderate growth, record low unemployment, and a benign inflation outlook, maintaining an unchanged setting for policy would have been appropriate,” George said. “There are certainly risks to the outlook as the economy faces trade policy uncertainty and weaker global activity.”

At the September FOMC meeting, just seven of the 17 participants projected another rate cut following reductions at the prior two meetings.

George said trade disputes as well as a move by foreign investors to own U.S. assets during a time of turmoil had boosted the value of the U.S. dollar compared to foreign currencies, which has been one factor weighing on U.S. inflation.

In response to audience questions, George said that while business spending has been slowed by concern over trade disputes, she was watching consumer spending, which accounts for 70% of the economy, as she determines whether she would favor any additional rate cuts.

“If I saw the consumer losing their confidence, and that can happen, I might rethink whether the consumer was in position” to continue to lead growth, she said, noting that the latest tariffs that will largely hit the consumer also have the potential to affect spending. “I see the same risks that all of my colleagues do.”

George, commenting in her speech on a review of the framework for monetary policy, said she didn’t believe the Fed missing its 2% inflation target over much of the past seven years was a concern, partly because her conversations with people across her district suggest slight misses aren’t an issue for ordinary Americans.

“The unemployment rate is near a 50-year low, inflation is low and stable, and the economy is growing near potential,” she said. “In the midst of the longest business cycle expansion in history, inflation running a few tenths of a percent below 2% is, in itself, not a compelling justification for providing additional monetary policy accommodation.”

(Adds response to questions in eighth paragraph.)

To contact the reporter on this story: Steve Matthews in Denver at smatthews@bloomberg.net

To contact the editors responsible for this story: Alister Bull at abull7@bloomberg.net, Jeff Kearns, Ros Krasny

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